Public policies

Government plans

On 7 July 2023, the Dutch government collapsed due to a disagreement between coalition parties over asylum policies. New national elections were held on 22 November 2023 and the process of forming a new government is still underway. This is likely to take some time as at least four different parties are needed to form the new government. Until then, the caretaker government is not expected to make any major political decisions.

The Dutch government increased the real estate transfer tax (RETT) from 8.0% to 10.4% as of 1 January 2023. Additionally, legislation prohibiting fiscal investment institutions (Flls) to directly invest in Dutch real estate has been adopted and will become effective on January 1, 2025. For this reason, a restructuring of the Fund into a tax transparent so called closed fund for mutual account (‘gesloten FGR’ in Dutch) is planned for 31 December 2024. A closed fund for mutual account is not subject to income tax. This new legislation also includes a conditional exemption from real estate transfer tax for shareholders with a so-called substantial interest (>=33⅓%) upon a restructuring that is triggered by this change in the FII rules.

Occupier market

The past two years have been extremely challenging and interesting years for the retail market in the broadest sense of the word. In Q2 2022, consumers found their way back to the shopping streets and 2023 saw continued growth in footfall,  by more than 2% for the Netherlands as a whole and as much as +4.7% in the busiest locations (source: RMC). At the same time, the number of bankruptcies increased in 2023, partly due to a lack of distinctiveness of retail formats, but also due to the delayed impact of the Covid period.

Online turnover continued to grow in 2023, but at a significantly lower growth rate than previously, and after a sharp decline in Q1 and Q2 2022. Online retailers are now dealing with new Asian low-budget competitors in an already competitive market, logistical challenges and significantly increased costs, including marketing costs. As a result, several online retailers have had to reduce their overheads and lay off people, sometimes for the first time in their existence.

For the time being, consumers want to be able to shop in-store as well as online. The reduction of rents in the past period made opening a store more profitable than in recent years. All in all, retailers need to keep their online and in-store channels in balance and make sure they are in a position to respond to any addditional changes in market conditions.

Regarding sales levels: most retail branches have been able to incorporate inflation into their price levels and as such total retail sales increased by 5.6% in 2023. At the same time, the volume of goods sold has been gradually declining (-2.4%), as consumers are trying to reign in their purchasing. Retailers, both online and in-store, have to walk a fine line between raising prices and simultaneously retaining their customers. On top of this, retailers continue to have to manage overall high operating costs.

Despite all the current uncertainty, the retail occupier market registered an 11.3% increase in activity versus the previous year, with total take-up of 590,000 m². Despite the rise in take-up, actual vacancy increased in the course of the year, to 6.2% from 6.0%. This increase was mainly due to the closure of independent entrepreneurs, very much due to the ageing of the Dutch entrepreneurial base and the lack of succession. Bankruptcies only accounted for a small part of this increase in vacancy (source: Locatus).

Over the course of 2023, prime rents on major high streets managed to remain fairly stable: of the G5 cities only Amsterdam showed a 4.0% drop in prime rents. Market rents at convenience locations saw a specific increase for supermarkets, as these are best-equipped to pass on the costs of inflation to their customers.

Investment market

The real estate investment market in the Netherlands and in most other countries came to a near standstill in the first half of 2023. The main reason for this was the rapid series of interest rate hikes by central banks to counter high inflation. As a result, initial yields increased and property values began to fall, which led to a cautious market sentiment and a widening gap in pricing between sellers and (leveraged) buyers.

In the Netherlands, additional challenges such as newly announced policies regarding tax measures for investors, also contributed to this cautious investment sentiment. Together with the increasingly gloomy economic outlook and geopolitical turmoil, this resulted in a major drop in the total real estate investment volume to € 7.6 billion, from € 17.4 billion in the previous year. The drop was across the board, although the second half of 2023, when inflation was tempered, showed signs of a recovery.

In 2023, retail real estate investments came in at a very low € 890 million, compared with € 2.1 billion the in the previous year. A closer look at the various retail segments reveals that retail warehouse investments were the least impacted with a 20.3% drop compared with the previous year.

Driven by the interest rate growth, pressure on rents and economic uncertainty, 2023 saw a further initial yield expansion for the high street subsector. Prime yields in the G5 cities gradually moved outward by 40-55 bps. This is substantially less than in many other sectors, in particular due to the broad base of possible buyers. Yield expansion for convenience shopping centres was more limited and was more than offset by an increase in rents (especially for supermarkets).

The Fund believes that prime retail destinations in the city centres of the largest cities will continue to see long-term strong demand from retailers and that this market is close to bottoming out. The forecast for convenience shopping centres and supermarkets is gradual growth in rents and a gradual decline in yields. Overall, however, the possible effect of changes in inflation and in interest rates are creating some uncertainty.